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Reuters/Christinne Muschi
Milking the changes.
USMCA: THE NEW NAFTA

This is what free trade looks like under Trump

Ana Campoy
By Ana Campoy

Latin America reporter

Canada is joining the US and Mexico’s new trade deal, essentially creating a new version of the NAFTA agreement that had governed trade within North America.

The new deal will be called the United States-Mexico-Canada Agreement, or USMCA. It now must go to Congress for approval, in time to meet a deadline that will allow Mexico’s outgoing president to sign it before he leaves office on Dec. 1.

In the first full-fledged deal negotiated under Donald Trump’s America First policy, the US was able to extract some concessions that restrict trade. Other sections resemble terms of the Trans-Pacific Partnership, the 12-nation deal that Trump left when he first came to office.

The deal still has to be approved by lawmakers in all three countries, but overall, it should put a lid on Trump-induced uncertainty about trade in the region.

Here as some of USMCA’s highlights:

Dairy

A key issue that had kept Canada and the US from agreement was dairy, which Trump described as a “deal breaker” this morning. Trump had railed against protections for Canadian farmers, which he said put American milk producers at a disadvantage. Under USMCA, Canada will lift protections on certain kinds of milk and will open up 3.5% of its domestic dairy market.

Autos

A top goal for Trump was to force manufacturers to make their products in the US. USMCA’s rules of origin provisions attempt to do that. Under them, the content of a car made in North America goes up to 75%, from 62.5%, in order to avoid tariffs. Under another provision, 40% of that content will have to be produced by workers who earn $16 an hour—meaning in Canada or the US, since salaries in Mexico are much lower than that.

The salary rule might not have that big of an effect in practice, but it does set a precedent for free trade agreements with the potential to damage production chains stretched across the world.

Dispute settlement: Chapter 19

Trump gave in on Chapter 19, a dispute settlement mechanism that his administration wanted to do away, but Canada was adamant about keeping. The new USMCA keeps it.

Sunset clause

Trump had originally wanted to include a clause that would force the three members to re-approve NAFTA every five years to keep it alive. His administration eventually yielded to a longer-term version of that. Under the new rules, the deal spans 16 years, and is subject to revision after six—a period long enough to appease investors, says Duncan Wood, director of the Wilson Center’s Mexico Institute.

“No free trade agreement is perfect,” he said. “A number of issues in here are suboptimal.” But overall, he added, USMCA is a step in the right direction.